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Aetna Is Losing Interest in Exchanges -- WSJ

Aetna Inc. will again scale back its presence in the Affordable Care Act exchanges in 2018, saying it expects losses on the business this year despite sharply reduced enrollment in its individual plans.

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The health insurer's disclosure came as it swung to a loss in the most recent quarter in the aftermath of its failed merger with Humana Inc. Excluding the impact of the merger termination costs and other items, Aetna beat analysts' expectations for the first quarter and lifted the bottom range for its 2017 earnings guidance.

Individual plans are a small share of Aetna's overall business, and the insurer had already scaled back its exchange presence to four ACA marketplaces currently, down from 15 last year.

Aetna said it expects 2017 losses on its individual business will amount to roughly half its loss last year, which was $450 million. Its individual enrollment is 255,000, down from about 964,000 at the end of 2016, but the first-quarter total was larger than it had expected, and Aetna's chief financial officer, Shawn M. Guertin, said the company was seeing "higher cost levels than we had previously projected" among enrollees.

Mr. Guertin said during a call with analysts that Aetna, which also offers individual plans outside the exchanges in some states, was looking toward "significantly reducing our exposure" to the individual business next year. In an interview, he said, "obviously the results drive the decision to reduce our exposure and manage this risk."

Aetna has said it would pull out of Iowa's ACA marketplace in 2018, and its remaining states are Delaware, Nebraska and Virginia. According to the Kaiser Family Foundation, Aetna isn't the sole exchange insurer in any of its regions.

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Aetna's comments represent the latest alarm bell from an insurer about continued struggles with the exchanges as the industry is in the process of filing 2018 plans with state regulators. Like Humana, which said in February that it would withdraw completely from the ACA marketplaces, Aetna pointed to the underlying economics of the business. Wellmark Blue Cross and Blue Shield, which said last month it won't offer ACA plans next year in Iowa, also flagged losses in announcing its withdrawal.

Insurers are facing questions surrounding the future of the ACA itself, which House Republicans are trying to overhaul with a bill that hasn't won enough votes to move forward.

Industry officials have also said they need certainty around federal payments that currently help reduce health costs for low-income ACA enrollees. Anthem Inc. has said that without these cost-sharing payments, premiums could rise 20% or more and it will consider cutting back in, or completely exiting, certain ACA markets. Molina Healthcare Inc. has said it would leave the exchanges if the federal payments aren't funded.

In all for the first quarter, Aetna reported a loss of $381 million or $1.11 a share, compared with a profit of $737 million or $2.08 a share, a year earlier. Revenue fell 3.4% to $15.17 billion.

On an adjusted basis the company earned $2.71 a share, up 17% from last year's $2.32 a share. Analysts polled by Thomson Reuters were expecting earnings of $2.37 a share. Analysts said the result was fueled by strong performance in Aetna's core employer business. Aetna is also seeing expansion in its Medicaid and Medicare lines, where it has said it would seek growth in the wake of its failed attempt to acquire Humana, a strong Medicare player. Mr. Guertin said that the recent quarter marked the first time when Aetna had more premiums from its government business than its traditional commercial plans.

Aetna said it now expects earnings of $8.80 to $9 a share for 2017, in line with analysts' projections of $8.88 a share. In January, Aetna projected earnings of at least $8.55 a share.

On a net basis, the company expects the fallout from the Humana merger to dent its full-year earnings by $3.69 a share. A federal judge blocked the proposed $34 billion deal between the two health insurers on antitrust grounds, and Aetna and Humana said in February that they wouldn't appeal the decision. Under the terms of the deal, Humana was due to receive a $1 billion breakup fee.

Write to Anna Wilde Mathews at anna.mathews@wsj.com and Imani Moise at imani.moise@wsj.com